Westpac v ASIC case adjourned amid settlement talks

By Clancy Yeates & Michaela Whitbourn

3 September 2018 — 11:15am

A landmark case against Westpac alleging it broke responsible lending laws was delayed on Monday amid discussions over a potential settlement with the corporate watchdog.

In the first action of its kind, the Australian Securities and Investments Commission (ASIC) launched civil penalty proceedings against Westpac last year alleging it acted irresponsibly by failing to assess properly whether customers could afford mortgages.

The three-week trial was due to start in the Federal Court in Sydney on Monday morning but the parties spent the day locked in settlement talks.

Neither ASIC nor Westpac would comment on the case but it was understood settlement talks were underway. On Monday afternoon, Westpac's barrister Jeremy Kirk, SC, told Justice Nye Perram "progress is being made" but "we are not quite there yet".

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He said the matter "cannot be allowed to drag on, however" and the parties would be in a position to tell the court if the case would proceed by 9am on Tuesday. If the dispute was not resolved, the trial would start at 10.15am that day.

The hearing was expected to commence at 10.15am on Monday but was delayed until 2.15pm, before being delayed again until 4.15pm. Discusssions will continue overnight.

In documents filed in the Federal Court, ASIC alleges Westpac failed to properly assess home loans it granted between late 2011 and 2015.

The regulator accused the bank of relying on a statistical benchmark, the Household Expenditure Measure (HEM), rather than the customers' actual living expenses.

The banking sector's reliance on benchmark indexes as a proxy for living expenses was repeatedly highlighted by the Hayne royal commission's round of hearings on home loans earlier this year, and has also been a focus of regulators, as they attempt to lift credit standards.

In its defence last year, Westpac had said the law did not require it to use a customer's declared expenses instead of the HEM. It also said ASIC had not established that any of the loans were unsuitable.

Settling the matter would require the bank admit to wrongdoing, but would effectively deal with an issue as the industry faces fierce scrutiny from the royal commission.

Unlike rival banks, Westpac last year opted to fight ASIC in court over its allegations it rigged one of the most important interest rates in the country. The Federal Court in May said Westpac engaged in unconscionable conduct on four occasions in this matter, but it was cleared of market manipulation.